U.S. patent application number 10/156760 was filed with the patent office on 2003-12-04 for method and computer program product for analyzing and projecting the future investment value of a business organization.
Invention is credited to Marshall, Ric, Minow, Nell, Monks, Robert A.G..
Application Number | 20030225652 10/156760 |
Document ID | / |
Family ID | 29582332 |
Filed Date | 2003-12-04 |
United States Patent
Application |
20030225652 |
Kind Code |
A1 |
Minow, Nell ; et
al. |
December 4, 2003 |
Method and computer program product for analyzing and projecting
the future investment value of a business organization
Abstract
A method and computer program product is provided for analyzing
and projecting the future investment value of a business
organization, such as a publicly-traded corporation. The method
includes the assignment of a first score to the business
organization based on one or more factors related to the corporate
governance of the organization, including chief executive officer
(CEO) compensation, outside director shareholdings, merger and
acquisition (M&A) decisions, and accounting and audit
practices. A second score is assigned to the business organization
based on the past performance of the organization. The first and
second scores are then correlated to provide a third score, which
indicates a projected investment value of the business
organization. The results may then be stored in a database and
provided to an end user via a data network, such as the Internet,
or stored on a computer useable medium, such as a floppy disk,
CD-ROM or DVD-ROM.
Inventors: |
Minow, Nell; (McLean,
VA) ; Monks, Robert A.G.; (Palm Beach, FL) ;
Marshall, Ric; (Cape Elizabeth, ME) |
Correspondence
Address: |
STERNE, KESSLER, GOLDSTEIN & FOX PLLC
1100 NEW YORK AVENUE, N.W.
WASHINGTON
DC
20005
US
|
Family ID: |
29582332 |
Appl. No.: |
10/156760 |
Filed: |
May 29, 2002 |
Current U.S.
Class: |
705/36R |
Current CPC
Class: |
G06Q 40/06 20130101;
G06Q 40/08 20130101 |
Class at
Publication: |
705/36 |
International
Class: |
G06F 017/60 |
Claims
What is claimed is:
1. A computer program product comprising a computer useable medium
having computer program logic recorded thereon for enabling a
processor in a computer system to project the future investment
value of a business organization, said computer program logic
comprising: first means for enabling the processor to assign a
first score to the business organization based on the corporate
governance of the business organization; second means for enabling
the processor to assign a second score to the business organization
based on the past performance of the business organization; and
third means for enabling the processor to assign a third score to
the company by correlating said first score to said second score,
wherein said third score indicates a projected investment value of
the business organization.
2. The computer program product of claim 1, further comprising:
fourth means for enabling the processor to store said third score
in a database.
3. The computer program product of claim 2, further comprising:
fifth means for enabling the processor to provide the contents of
said database to a user via a data network.
4. The computer program product of claim 1, wherein said first
means comprises means for enabling the processor to assign a score
to the business organization based on chief executive officer
compensation.
5. The computer program product of claim 1, wherein said first
means comprises means for enabling the processor to assign a score
to the business organization based on outside director
shareholdings.
6. The computer program product of claim 1, wherein said first
means comprises means for enabling the processor to assign a score
to the business organization based on merger and acquisition
decisions.
7. The computer program product of claim 1, wherein said first
means comprises means for enabling the processor to assign a score
to the business organization based on accounting and audit
practices.
8. The computer program product of claim 1, wherein said second
means comprises means for enabling the processor to assign a score
to the business organization based on the difference between a
return on investment in the business organization and an industry
average return on investment.
9. A computer program product comprising a computer useable medium
having computer program logic recorded thereon for enabling a
processor in a computer system to project the future investment
value of a business organization, said computer program logic
comprising: first means for enabling the processor to assign a
first score to the business organization, wherein said first score
is based on chief executive officer compensation, outside director
shareholdings, merger and acquisition decisions, and accounting and
audit practices; second means for enabling the processor to assign
a second score to the business organization based on past
performance of the business organization; and third means for
enabling the processor to assign a third score to the company by
correlating said first score to said second score, wherein said
third score indicates a projected investment value of the business
organization.
10. A computer program product comprising a computer useable medium
having computer program logic recorded thereon for enabling a
processor in a computer system to project the future investment
value of a business organization, said computer program logic
comprising: first means for enabling the processor to assign a
first score to the business organization, wherein said first score
is based on chief executive officer compensation and outside
director shareholdings; second means for enabling the processor to
assign a second score to the business organization based on past
performance of the business organization; and third means for
enabling the processor to assign a third score to the company by
correlating said first score to said second score, wherein said
third score indicates a projected investment value of the business
organization.
11. A method for projecting the future investment value of a
business organization, comprising: assigning a first score to the
business organization based on corporate governance of the business
organization; assigning a second score to the business organization
based on past performance of the business organization; and
assigning a third score to the company by correlating said first
score to said second score, wherein said third score indicates a
projected investment value of the business organization.
12. The method of claim 11, further comprising storing said third
score in a database.
13. The method of claim 12, further comprising providing the
contents of said database to a user via a data network.
14. The method of claim 12, wherein said database is stored on a
computer useable medium, and wherein said method further comprises
providing said computer useable medium to a user.
15. The method of claim 11, wherein said step of assigning a first
score comprises assigning a score to the business organization
based on chief executive officer compensation.
16. The method of claim 11, wherein said step of assigning a first
score comprises assigning a score to the business organization
based on outside director shareholdings.
17. The method of claim 11, wherein said step of assigning a first
score comprises assigning a score to the business organization
based on merger and acquisition decisions.
18. The method of claim 11, wherein said step of assigning a first
score comprises assigning a score to the business organization
based on accounting and audit practices.
19. The method of claim 11, wherein said step of assigning a second
score comprises assigning a score based on the difference between a
return on investment in the business organization and an industry
average return on investment.
20. The method of claim 11, further comprising collecting data
about the business organization prior to any of the assigning
steps.
21. A method for projecting the future investment value of a
business organization, comprising: collecting corporate governance
data and past performance data about the business organization;
assigning a first score to the business organization based on said
corporate governance data; assigning a second score to the business
organization based on said past performance data; assigning a third
score to the company by correlating said first score to said second
score, wherein said third score indicates a projected investment
value of the business organization; and providing said third score
to a user.
22. A method for projecting the future investment value of a
business organization, comprising: assigning a first score to the
business organization, wherein said first score is based on chief
executive officer compensation, outside director shareholdings,
merger and acquisition decisions, and accounting and audit
practices; assigning a second score to the business organization
based on past performance of the business organization; and
assigning a third score to the company by correlating said first
score to said second score, wherein said third score indicates a
projected investment value of the business organization.
23. A method for projecting the future investment value of a
business organization, comprising: assigning a first score to the
business organization, wherein said first score is based on chief
executive officer compensation and outside director shareholdings;
assigning a second score to the business organization based on past
performance of the business organization; and assigning a third
score to the company by correlating said first score to said second
score, wherein said third score indicates a projected investment
value of the business organization.
Description
BACKGROUND OF THE INVENTION
[0001] 1. Field of the Invention
[0002] The present invention is generally related to methods and
computer program products for analyzing and rating business
organizations.
[0003] 2. Background
[0004] The past ten years have witnessed a growing awareness on the
part of investors that the corporate governance structures and
policies of publicly-traded companies can have an enormous impact
on long-term shareholder value. Although extensive research has
failed thus far to demonstrate any direct link between corporate
governance and corporate performance, many experienced investors
feel intuitively that good corporate governance adds a value
premium to companies. For example, according to a recent Investor
Opinion Survey conducted by McKinsey & Company, over 80% of 200
top institutional investors would pay an 18% or greater premium for
shares in well-governed companies.
[0005] Many conventional methods for projecting the future
investment value of a company do not take into account corporate
governance factors, instead relying largely on data relating to a
company's past performance. These projection methods are lacking
because they ignore the impact that good or bad corporate
governance can have on long-term shareholder value. For example,
companies that have performed well in the past may nevertheless
perform poorly in the future if they are poorly governed.
Conversely, companies that have performed poorly in the past may
nevertheless perform well in the future if they are well governed.
Projection methods based on past performance alone cannot
anticipate such trends.
[0006] Historically, corporate governance factors have been
considered by firms that provide proxy voting recommendations to
institutional investors. These firms analyze certain corporate
governance policies, practices and decisions to ascertain their
merits in anticipation of a proxy vote. Shareholder activist groups
have also analyzed corporate governance factors to identify
companies for which poor governance indicates the need for
extraordinary shareholder concern and involvement. However, neither
of the above-described analyses are directed at assessing the
future investment value of a company.
[0007] Some existing firms do purport to provide a projection of
future investment value relative to the corporate governance
profiles of companies. However, these firms typically rely on
methods that do not take into account the past performance of a
company, but instead focus on corporate governance factors alone.
Moreover, these firms typically use a simple "benchmarking"
approach for rating companies, whereby the company is assessed in
accordance with an extensive checklist of traditional corporate
governance indicators, some of which are not as important as others
in terms of their impact on long-term shareholder value. However,
because all of the indicators generally receive equal weight,
benchmarking yields a score that has its own internal logic
relative to corporate governance but bears no real relation to the
future investment value of a company.
[0008] What is desired then is a method and computer program
product for analyzing and projecting the future investment value of
a company that takes into account corporate governance factors as
well as data relating to the past performance of the company. By
correlating corporate governance factors with past performance, the
desired method and computer program product should generate a
projection of the future investment value of the company, including
whether the company is likely to sustain or improve value, the
index potential of the company's stock, and an assessment of the
risk of investing in the company. The desired method and computer
program product should also focus only on a limited set of key
corporate governance factors that most directly bear on the future
investment value of the company. Finally, the results of the
desired method and computer program product should be stored so
that they are easily accessible to an end-user via a variety of
access methods.
BRIEF SUMMARY OF THE INVENTION
[0009] Embodiments of the present invention provide a rating system
that defines the connection between corporate governance and
shareholder value. The rating system includes a rigorous
methodology that identifies and quantifies certain key indicators
of the effectiveness of the board of directors of a company. The
rating system then projects future market performance by
correlating past performance of the company against current board
effectiveness, effectively identifying previously hidden trends of
investment value and risk.
[0010] Because the rating system takes into account corporate
governance factors as well as past performance, it provides an
analysis that looks beyond the balance sheet and effectively gauges
the likely future impact of a company's corporate governance
practices on company share performance. The rating system is
premised on the observation that well-governed companies that are
performing well, and poorly governed companies that are performing
poorly, will be more likely to continue those patterns, and
conversely, that poorly governed companies that are performing
well, and well governed companies that are performing poorly, will
be less likely to continue those patterns.
[0011] A methodology in accordance with the present invention
focuses on those dynamic aspects of corporate governance that
directly impact shareholder value, and, as such, provides a major
advance over conventional proxy voting analysis and social
screening methodologies. For example, a methodology in accordance
with the present invention focuses on key areas over which the
board of directors of a company exercises control and where board
oversight is most crucial. These areas include:
[0012] Chief Executive Officer (CEO) Compensation: CEO compensation
is analyzed to determine if CEO pay is tied to value creation and
if the CEO is held accountable to shareholders, the market and the
board of directors itself;
[0013] Outside director shareholdings: Outside director
shareholdings are analyzed to determine if outside directors have a
vested interest in the long-term success of the company;
[0014] Mergers and Acquisition (M & A) Decisions: The M & A
decisions of the board of directors are analyzed to determine if
the board approved purchases that truly add value or, for example,
were prompted more by CEO empire-building; and
[0015] Accounting and Audit Practices: The accounting and audit
practices of the company are analyzed to determine if the board of
directors has signed off on practices and policies that provide the
most accurate picture of the company's health and value.
[0016] In an embodiment of the present invention, data is drawn
from publicly-available sources such as SEC filings, news stories
and company releases to generate ratings for board effectiveness.
These ratings are then correlated with data related to the past
performance of the company to generate a score indicating a
projected future investment value for the company. Ratings
generated in accordance with an embodiment of the present invention
may be used by investors, portfolio managers and analysts to make
investment decisions, to build benchmarks for well-governed
companies to enhance access to capital, or to identify poorly
performing companies that are susceptible to shareholder
action.
[0017] In particular, as will be described in more detail herein,
the present invention provides a method for projecting the future
investment value of a business organization and presenting the
results to a user. In accordance with an embodiment of the
invention, the method includes collecting data about a business
organization, analyzing the data and projecting the future
investment value of the business organization therefrom, and
storing the results in a database. The contents of the database may
then be provided to a user via a data network, such as the
Internet, or stored on a computer useable medium, such as a floppy
disk, CD-ROM or DVD-ROM, and provided to a user on the computer
useable medium.
[0018] Projecting the future investment value of a business
organization in accordance with an embodiment of the present
invention includes assigning a first score to the business
organization based on one or more of the following factors related
to corporate governance: chief executive officer compensation,
outside director shareholdings, merger and acquisition decisions,
and accounting and audit practices. The method also includes
assigning a second score to the business organization based on past
performance of the business organization. The second score may be
based, for example, on the difference between a return on
investment in the business organization and an industry average
return on investment. The method further includes assigning a third
score to the company by correlating the first score to the second
score, wherein the third score indicates a projected investment
value of the business organization.
[0019] A computer program product in accordance with an embodiment
of the present invention includes a computer useable medium having
computer program logic recorded thereon for enabling a processor in
a computer system to project the future investment value of a
business organization. The computer program logic includes first
means for enabling the processor to assign a first score to the
business organization based on one or more of the following factors
related to corporate governance: chief executive officer
compensation, outside director shareholdings, merger and
acquisition decisions, and accounting and audit practices. The
computer program logic also includes second means for enabling the
processor to assign a second score to the business organization
based on the past performance of the business organization. The
second score may be based, for example, on the difference between a
return on investment in the business organization and an industry
average return on investment. The computer program logic further
includes third means for enabling the processor to assign a third
score to the company by correlating the first score to the second
score, wherein the third score indicates a projected investment
value of the business organization. In an embodiment of the
invention, the computer program logic further includes fourth means
for enabling the processor to store the third score in a
database.
BRIEF DESCRIPTION OF THE DRAWINGS/FIGURES
[0020] The accompanying drawings, which are incorporated herein and
form part of the specification, illustrate the present invention
and, together with the description, further serve to explain the
principles of the invention and to enable a person skilled in the
pertinent art to make and use the invention.
[0021] FIG. 1 is a flowchart of a method for analyzing and
projecting the future investment value of a company and presenting
the results to a user in accordance with an embodiment of the
present invention.
[0022] FIG. 2 is a flowchart of a method of analyzing and
projecting the future investment value of a company in accordance
with an embodiment of the present invention.
[0023] FIG. 3 is a flowchart of a method for assigning a score to a
company based on factors related to corporate governance.
[0024] FIG. 4 illustrates an example computer system for analyzing
company data and projecting future investment value therefrom in
accordance with embodiments of the present invention.
[0025] FIG. 5 is a block diagram of an example network environment
for delivering the results of a method for analyzing company data
and projecting future investment value therefrom in accordance with
an embodiment of the present invention.
[0026] FIGS. 6 and 7 illustrate example user interfaces for
presenting the results of a method for analyzing company data and
projecting future investment value therefrom in accordance with an
embodiment of the present invention.
[0027] The features and advantages of the present invention will
become more apparent from the detailed description set forth below
when taken in conjunction with the drawings in which like reference
characters identify corresponding elements throughout. In the
drawings, like reference numbers generally indicate identical,
functionally similar, and/or structurally similar elements. The
drawings in which an element first appears is indicated by the
leftmost digit(s) in the corresponding reference number.
DETAILED DESCRIPTION OF THE INVENTION
[0028] A. Overview
[0029] FIG. 1 depicts a flowchart 100 of a method for analyzing and
projecting the future investment value of a business organization
and presenting the results to a user in accordance with an
embodiment of the present invention. In the embodiments described
herein, the business organization comprises a publicly-traded
company. As shown in FIG. 1, the method includes three main steps:
(1) collecting data related to the company at step 102; (2)
analyzing the collected data and projecting the future investment
value of the company therefrom at step 104; and finally (3)
presenting the results of the analysis and projection to a user at
step 106. The invention, however, is not limited to the description
provided by the flowchart 100. Rather, it will be apparent to
persons skilled in the relevant art(s) from the teachings provided
herein that other functional flows are within the scope and spirit
of the present invention.
[0030] The collection of company data at step 102 involves the
collection of data relating to both corporate governance of the
company as well as to the past performance of the company. For
example, in an embodiment of the invention, step 102 involves the
collection of data relating to chief executive officer (CEO)
compensation, outside director shareholdings in the company, merger
and acquisition (M&A) decisions made by the board of directors
of the company, the accounting and audit practices of the company,
and other miscellaneous factors bearing on corporate governance, as
well as data relating to past performance of the company, such as
an annual return on investment in the company over some predefined
period (e.g., one year). Such information may be gathered from
public filings with the Securities and Exchange Commission (SEC),
news stories, company press releases, and other readily accessible
public sources.
[0031] At step 104, the data collected in step 102 is analyzed and,
based on the analysis, the future investment value of the company
is projected. In accordance with embodiments of the present
invention, the analysis includes assigning a first score to the
company based on corporate governance factors, assigning a second
score to the company based on past performance of the company, and
then correlating the first and second score to generate a third
score, wherein the third score indicates a projected future
investment value for the company. As will be discussed in more
detail herein, various aspects of step 104 may be performed in
whole or in part by a computer system, including but not limited to
a standard personal computer (PC).
[0032] At step 106, the results of the analysis and projection of
step 102 are presented to an end-user. In an embodiment of the
invention, analysis and projection results for a plurality of
companies are stored in a database, which is then made available to
the end-user. For example, the database may be made available to
the end-user via a data network, such as the Internet. Alternately,
the database is stored on a computer useable medium, such as a
floppy disk or CD-ROM, and the end-user accesses it by loading the
medium into a computer system, such as a standard personal
computer. However, these examples are not intended to be limiting,
and a variety of methods may be used to communicate the results of
the analysis and projection step 102 to an end-user.
[0033] B. Analyzing and Project Future Investment Value of a
Company
[0034] FIG. 2 depicts a flowchart 200 of a method of analyzing and
projecting the future investment value of a company in accordance
with an embodiment of the present invention. The flowchart 200
provides an example of one method for performing step 104 of
flowchart 100, which is described above in reference to FIG. 1. As
shown in FIG. 2, the method includes a first step 202, in which a
first score is assigned to a company based on corporate governance
factors, a second step 204, in which a second score is assigned to
the company based on the past performance of the company, and a
third step 206, in which the first and second scores are correlated
to arrive at a projection of future investment value for the
company. Each of these steps will now be described in more
detail.
[0035] 1. Score Assignment Based on Corporate Governance
Factors
[0036] FIG. 3 depicts a flowchart 300 of a method for assigning a
score to a company, or a board of directors of a company, based on
factors related to corporate governance. The invention, however, is
not limited to the description provided by the flowchart 300.
Rather, it will be apparent to persons skilled in the art from the
teachings provided herein that other functional flows are within
the scope and spirit of the present invention. For example, the
present invention encompasses the performance of additional steps
or fewer steps than those shown in flowchart 300.
[0037] As illustrated in flowchart 300, the method includes
assigning several scores to a company based on key factors relating
to corporate governance, which are then summed to arrive at a total
overall corporate governance score for the company. In accordance
with an embodiment of the present invention, the key factors
comprise factors that have been observed to relate strongly to the
quality of governance for the company and to have an impact on
long-term shareholder value. Preferably, the key factors do not
relate to past performance of the company.
[0038] The scoring steps of flowchart 300 include steps 302, 304,
306, 308 and 310. In step 302, a first score is assigned to a
company based on the company's policies and practices in regard to
chief executive officer (CEO) compensation. In step 304, a second
score is assigned to the company based on the size of outside
director shareholdings. In step 306, a third score is assigned to
the company based on merger and acquisition (M&A) decisions
made by the board of directors of the company. In step 308, a
fourth score is assigned to the company based on the company's
accounting and audit practices. In step 310, a fifth score is
assigned to the company based on miscellaneous indicators or
problems relating to corporate governance. Finally, in step 312,
the scores from each of steps 302, 304, 306, 308 and 310 are summed
to generate an overall corporate governance score for the
company.
[0039] The scoring steps may be performed in any order, or in
parallel. In an embodiment, two or more of the scoring steps are
performed in a serial manner. In another embodiment, at least one
of the scoring steps is performed in parallel with at least one of
the other scoring steps. Each of the above-described scoring steps
will now be explained in more detail.
[0040] a. CEO Compensation
[0041] In accordance with an embodiment of the present invention, a
score is assigned to each company based on the practices and
policies of each company relating to CEO compensation. Generally
speaking, this scoring step is based on the principle that a CEO
compensation scheme that ties compensation to value creation and
holds the CEO accountable to shareholders, the market and the board
of directors itself, will generally result in improved corporate
governance.
[0042] To arrive at a score, various elements of CEO compensation
may be analyzed including regular compensation, incentive-based
compensation, as well as short-term and long-term compensation. In
this regard, data may be reviewed relating to a company's CEO
compensation policies, incentive-based compensation for the CEO,
CEO shareholding, and CEO contracts, employment agreements, and
severance arrangements with the company. In an embodiment of the
invention, a high score is assigned where the CEO compensation
practices and policies of a company will be likely to encourage
good corporate governance, a low score is assigned where the CEO
compensation scheme is unlikely to encourage good corporate
governance, and a neutral score is assigned where, on the whole,
the CEO compensation scheme is neither likely or unlikely to
encourage good corporate governance.
[0043] b. Outside Director Shareholdings
[0044] In accordance with an embodiment of the present invention, a
score is assigned to each company based on the amount of shares in
the company owned by outside directors (i.e., non-executives) on
the board of directors. This scoring step is based on the principle
that large shareholdings by outside directors correlate to improved
corporate governance.
[0045] For example, in an embodiment, three possible scores are
assigned to a board based on outside director shareholdings: (a) a
low score is assigned where a majority of outside directors do not
hold a minimum number of shares in the company; (b) a neutral score
is assigned where a majority of outside directors hold a minimum
number of shares in the company; or (c) a high score is assigned
where all the outside directors hold a minimum number of shares in
the company. The minimum number of shares is preferably the number
of shares associated with a predetermined share value. For example,
in an embodiment, the minimum number of shares is the number of
shares corresponding to a share value of $200,000.
[0046] In an embodiment, this step is performed by calculating the
approximate current dollar value of shares held by each director,
and then by determining how many of the outside directors on the
board own shares having a value greater than a predetermined share
value. The algorithm allows for the addition of new directors by
adjusting for tenure.
[0047] c. Merger and Acquisition Decisions
[0048] In accordance with an embodiment of the present invention, a
score is assigned to each company based on the quality of past
merger and acquisition (M&A) decisions made by the company's
board of directors, as determined by the impact of those decisions
on shareholder value.
[0049] For example, in an embodiment, three possible scores are
assigned to a board based on M&A decisions: (a) a low score is
assigned where a large loss in shareholder value has resulted from
past M&A decisions by the board; (b) a neutral score is
assigned where a past M&A decisions by the board have had a
minimal impact on shareholder value; or (c) a high score is
assigned where past M&A decisions by the board has resulted in
strong gains in shareholder value.
[0050] d. Accounting and Audit Practices
[0051] In accordance with an embodiment of the present invention, a
score is assigned to each company based on the accounting and audit
practices approved by the board of directors of the company.
Generally speaking, poor or suspect accounting and audit practices
will result in a lower score.
[0052] For example, in an embodiment, a scoring penalty is
cumulatively applied to a company based on the presence of certain
accounting and audit indicators. A larger penalty is incurred for
each of the following indicators: (a) known instances of fraud or
misrepresentation; (b) repetitive large special charges, i.e.,
expenses which a company recognizes in a single reporting period,
and which the company claims is unlikely to recur in the future;
and (c) reliance on "cookiejar" reserves, a corporate accounting
practice of taking reserves against losses during profitable years
and using them in unprofitable years to smooth out earnings numbers
and make a company's operations seem more consistent than they are.
A smaller penalty is incurred for each of the following indicators:
(a) pension gains or options-related tax gains added to operational
earnings; (b) any other reporting of non-GAAP (Generally Accepted
Accounting Principles) operational earnings; (c) qualified opinions
by auditors, i.e., opinions for which some limitations exist, such
as an inability to gather certain information or a significant
upcoming event which may or may not occur; and (d) auditors who
make more for non-audit services.
[0053] In an embodiment, this step is performed by assigning a
negative score or penalty to a company for each of the above
indicators, and then accumulating the penalties to generate an
overall score for the company relating to accounting and audit
practices. A score of zero would thus indicate no problems in this
area.
[0054] e. Miscellaneous Problems
[0055] In accordance with an embodiment of the present invention, a
score is assigned to each company based on a variety of other
corporate governance indicators that do not fall within the
categories of CEO compensation, outside director shareholdings,
M&A decisions, and accounting and audit practices, as described
above.
[0056] For example, in an embodiment, a scoring penalty is
cumulatively applied to a board based on indications of certain
miscellaneous problems. A larger penalty may be incurred for each
of the following indicators: (a) indexed stock; or (b) three or
more token directors, wherein a token director includes sitting or
retired CEOs, politicians, celebrities, academic or minority
directors who sit on five or more boards. A smaller penalty is
incurred for each of the following indicators: (a) exiting CEO
remains as chairman, which indicates a lack of confidence in the
new CEO; (b) a homologous board (i.e., a board with all directors
from the same industry or geographical region); (c) the company is
listed on one of the focus lists of underperforming corporations
published by the California Public Employees' Retirement System
(CalPERS), the Council of Institutional Investors (CII), or other
known shareholder activists; (d) the company has paid significant
fines or penalties for criminal or negligent behavior in the last
three years; (e) large recent insider stock sales (e.g., within the
past six months); and (f) lack of board focus on core business.
[0057] In an embodiment, this step is performed by assigning a
negative score or penalty to a company for each of the above
indicators, and then accumulating the penalties to generate an
overall score for the company relating to miscellaneous problems. A
score of zero would thus indicate no problems in this area.
[0058] f. Sample Scoring Breakdown
[0059] Table 1, below, illustrates an example scoring system for
assigning a score to a company, or board of directors of a company,
based on key corporate governance factors.
1TABLE 1 CEO Compensation TOTAL RANGE THIS CATEGORY -30 to 30
Outside Director Shares TOTAL RANGE THIS CATEGORY -50 to 50 All
outside directors hold minimum number of shares 50 Majority of
outside directors hold minimum number of 0 shares Majority of
outside directors do not hold minimum number -50 of shares M&A
Decisions TOTAL RANGE THIS CATEGORY -20 to 20 Storng value gains
due to M&A decisions 20 M&A decisions have had minimal
impact on shareholder 0 value Large value losses due to M&A
decisions -20 Accounting Practices TOTAL RANGE THIS CATEGORY -50 to
0 Known instances of fraud or misrepresentation -10 Repetitive
large special charges -10 Reliance on "cookie jar" reserves -10
Pension gains or options-related tax gains added to -5 operational
earnings Any other reporting of non-GAAP operational earnings -5
Qualified opinions by auditors -5 Auditors make more for non-audit
services -5 Miscellaneous Problems TOTAL RANGE THIS CATEGORY -50 to
0 Indexed stock -10 3 or more celebrity or token directors -10
Exiting CEO remains as chairman -5 Homologous board -5 Is on
shareholder activist focus list -5 Has paid significant fines or
penalties for criminal or -5 negligent behavior in last 3 years
Large recent insider stock sales -5 Lacks focus on core business -5
TOTAL RANGE -200 to 100
[0060] In accordance with the scoring system illustrated in Table
1, a company receives separate scores in each of the five
categories of CEO compensation, outside director shares, M&A
decisions, accounting practices, and miscellaneous problems. These
scores are then summed to generate an overall governance score for
the company.
[0061] The total number of points attributed to each category
determines the weight given to that category in obtaining the
overall corporate governance score. For example, in the scoring
system illustrated in Table 1, the CEO compensation category
accounts for 60 points of the total 300 point range, and therefore
represents 20% of the total score. In further accordance with the
scoring system illustrated in Table 1, the outside director shares
category accounts for approximately 33.3% of the total score, the
M&A decisions category accounts for approximately 13.3% of the
total score, and the accounting practices and miscellaneous
problems categories each account for approximately 16.7% of the
total score. As will be appreciated by persons skilled in the
relevant art, the weight given to each category in this scheme may
be modified as desired by changing the number of points allocated
to each category.
[0062] The total range of scores for the system illustrated in
Table 1 is -200 to 100 points. In accordance with an embodiment of
the present invention, a total score within the range of 40 to 100
corresponds to a "strong" governance rating for the company, a
total score within the range of -40 to 39 corresponds to an
"average" governance rating for the company, and a total score
within the range of -200 to -41 corresponds to a "poor" governance
rating for the company.
[0063] 2. Score Assignment Based on Past Company Performance
[0064] As discussed above in reference to flowchart 200 of FIG. 2,
in a second step 204 of a method of analyzing and projecting the
future investment value of a company in accordance with an
embodiment of the present invention, a second score is assigned to
a company based on the past performance of the company. Past
company performance may be gauged by comparing return on investment
in the company with industry average returns. For example, in an
embodiment of the invention, one year returns for the company are
compared to industry average one year returns. Where returns are
ten points or better than industry average 1 year returns, a score
indicative of a "strong" performance rating is assigned to the
company. Where returns are between nine points below or above
industry average 1 year returns, a score indicative of an "average"
performance rating is assigned to the company. Where returns are 10
points or more below industry average 1 year returns, a score
indicative of a "poor" performance rating is assigned to the
company.
[0065] 3. Correlation of Board Scores to Past Company
Performance
[0066] As also discussed above in reference to flowchart 200 of
FIG. 2, in a third step 206 of a method of analyzing and projecting
the future investment value of a company in accordance with an
embodiment of the present invention, the corporate governance score
from the first step 202 is correlated with the performance score
from the second step 204 to arrive at a projection of investment
value for the company.
[0067] Board scores may be correlated with performance scores in
the manner illustrated in Table 2, below, to arrive at overall,
forward-looking, investment and risk-oriented letter grades:
2TABLE 2 Per- Risk form- Investment Assess- ance Board Grade
Category Index Potential ment Strong Strong A Likely to Sustainable
Lowest Sustain Value Out- Risk Performance Average Strong B Likely
to Value Stocks- Low Improve Value Average Gains Risk Poor Strong B
Likely to Value Stocks- Low Improve Value Highest Gains Risk Strong
Average C Neutral Impact None Average on Value Risk Average Average
C Neutral Impact None Average on Value Risk Poor Average C Neutral
Impact None Average on Value Risk Strong Poor D Unlikely to Short
stocks- High Sustain Value Highest Gains Risk Average Poor D
Unlikely to Short stocks- High Improve Value Average gains Risk
Poor Poor F Unlikely to May be Highest Improve Value susceptible to
Risk shareholder action
[0068] The correlation scheme of Table 2 assumes that the resulting
corporate governance score for each company from step 202
corresponds to one of three overall ratings, "strong," "average,"
or "poor," and that each company is also assigned a similar rating
based on the performance score from step 204. These two ratings are
then plotted using Table 2 to determine a letter grade for each
company, which in turn implies a certain investment projection and
overall investment risk assessment.
[0069] The correlation scheme of Table 2 generates a projection of
future investment value of a company, including an assessment of
whether the company is likely to sustain or improve value, the
index potential of the company's stock, and an assessment of the
risk of investing in the company. The correlation scheme is based
on the underlying principle that well-governed companies that are
performing well, and poorly governed companies that are performing
poorly, will be more likely to continue those patterns, and
conversely, that poorly governed companies that are performing
well, and well governed companies that are performing poorly, will
be less likely to continue those patterns.
[0070] 4. Example Computer Implementation in Accordance with
Embodiments of the Present Invention
[0071] Methods for analyzing company data and projecting future
investment value therefrom in accordance with embodiments of the
present invention may be implemented in software and executed by
one or more computer systems or other processing systems. For
example, FIG. 4 depicts an example computer system 400 that may
execute software for implementing the methods of the present
invention, including, but not limited to, any or all of the method
steps of flowcharts 200 and 300 described above in reference to
FIGS. 2 and 3, respectively.
[0072] As shown in FIG. 4, the example computer system 400 includes
a processor 402 for executing software routines in accordance with
embodiments of the present invention. Although a single processor
is shown for the sake of clarity, the computer system 400 may also
comprise a multi-processor system. The processor 402 is connected
to a communication infrastructure 404 for communication with other
components of the computer system 400. The communication
infrastructure 404 may comprise, for example, a communications bus,
cross-bar, or network.
[0073] Computer system 400 further includes a main memory 406, such
as a random access memory (RAM), and a secondary memory 408. The
secondary memory 408 may include, for example, a hard disk drive
410 and/or a removable storage drive 412, which may comprise a
floppy disk drive, a magnetic tape drive, an optical disk drive, or
the like. The removable storage drive 412 reads from and/or writes
to a removable storage unit 414 in a well known manner. Removable
storage unit 414 may comprise a floppy disk, magnetic tape, optical
disk, or the like, which is read by and written to by removable
storage drive 412. As will be appreciated by persons skilled in the
art, the removable storage unit 414 includes a computer usable
storage medium having stored therein computer software and/or
data.
[0074] In alternative embodiments, secondary memory 408 may include
other similar means for allowing computer programs or other
instructions to be loaded into computer system 400. Such means can
include, for example, a removable storage unit 418 and an interface
416. Examples of a removable storage unit 418 and interface 416
include a program cartridge and cartridge interface (such as that
found in video game console devices), a removable memory chip (such
as an EPROM, or PROM) and associated socket, and other removable
storage units 418 and interfaces 416 which allow software and data
to be transferred from the removable storage unit 418 to computer
system 400.
[0075] Computer system 400 further includes a display interface 420
that forwards graphics, text, and other data from the communication
infrastructure 404 or from a frame buffer (not shown) for display
to a user on a display unit 422.
[0076] Computer system 400 also includes a communication interface
424. Communication interface 424 allows software and data to be
transferred between computer system 400 and external devices via a
communication path 426. Examples of communications interface 424
can include a modem, a network interface (such as Ethernet card), a
communications port, and the like. Software and data transferred
via communications interface 424 are in the form of signals 428
which can be electronic, electromagnetic, optical or other signals
capable of being received by communications interface 424. These
signals 428 are provided to the communications interface via the
communication path 426.
[0077] As used herein, the term "computer program product" may
refer, in part, to removable storage unit 414, removable storage
unit 418, a hard disk installed in hard disk drive 410, or a
carrier wave carrying software over a communication path 426
(wireless link or cable) to communication interface 424. A computer
useable medium can include magnetic media, optical media, or other
recordable media, or media that transmits a carrier wave or other
signal. These computer program products are means for providing
software to computer system 400.
[0078] Computer programs (also called computer control logic) are
stored in main memory 406 and/or secondary memory 408. Computer
programs can also be received via communications interface 424 Such
computer programs, when executed, enable the computer system 400 to
perform the features of the present invention as discussed
herein.
[0079] In particular, the computer programs, when executed, enable
the processor 402 to perform the method steps of flowchart 200 as
described above in reference to FIG. 2, wherein necessary inputs
such as information relating to corporate governance and corporate
performance are provided by a user via a user input device (not
shown), or are obtained from main memory 406, secondary memory 408,
or communication interface 424. The computer programs, when
executed, may also enable the processor 402 to perform the method
steps of flowchart 300 as described above in reference to FIG. 3,
wherein necessary inputs such as scores relating to key corporate
governance factors are provided by a user via a user input device
(not shown), or are obtained from main memory 406, secondary memory
408, or communication interface 424. Accordingly, such computer
programs represent controllers of the computer system 400.
[0080] In an embodiment where the present invention is implemented
using software, the software may be stored in a computer program
product and loaded into computer system 400 using removable storage
drive 412, hard disk drive 4120 or communication interface 425.
Alternatively, the computer program product may be downloaded to
computer system 400 over communications path 426. The software,
when executed by the processor 402, causes the processor 402 to
perform functions of the invention as described herein.
[0081] C. Presentation of Projection Results
[0082] In accordance with an embodiment of the present invention,
the results of the above-described method for analyzing company
data and projecting future investment value therefrom are stored in
a database for presentation to an end-user. For example, with
continued reference to the exemplary computer system 400, a
computer program, when executed, enables the processor 402 to store
projection results in a database residing in main memory 406 or
secondary memory 408. The information in the database is then made
available to an end-user.
[0083] 1. Network Access
[0084] For example, in an embodiment, the database is made
available to an end-user via a data network. FIG. 5 is a block
diagram of an example network environment 500 for results delivery
in accordance with embodiments of the present invention. The
example network environment 500 includes a data network 502 which
connects a plurality of user devices 510a-510n to a host 504. The
data network 502 provides a pathway for the bi-directional
communication of electronic data between the user devices and the
host. The data network 502 can comprise any type of computer
network or combination of networks including, but not limited to,
circuit switched and/or packet switched networks. Additionally, the
data network 502 may comprise a variety of transmission mediums
including, but not limited to, twisted pair, coaxial cable,
fiber-optic and/or wireless transmission mediums. In an example
environment, the data network 502 includes a wide area network such
as the Internet.
[0085] Each user device 510a-510n executes a corresponding client
application 512a-512n that is adapted to generate and transmit
requests for electronic information to the host 504. Each client
512a-512n is further adapted to receive responses as well as
requested data from the host 504. For example, in accordance with
an embodiment of the present invention, each client 512a-512n is
adapted to request and receive the results of the above-described
method for analyzing company data and projecting future investment
value therefrom from the host 504.
[0086] In an example environment, each user device 510a-510n
comprises a personal computer and each client 512a-512n comprises a
commercially-available Web browser for requesting and receiving
electronic information over the data network 502. However, this
example is not limiting and each user device 510a-510n can comprise
any device capable of running client applications for sending and
receiving electronic information over a data network including, but
not limited to, data terminal equipment, set-top boxes, Personal
Digital Assistants (PDAs), cellular phones, automotive on-board
computers, and the like.
[0087] The host 504 executes a server program 506 that is adapted
to respond to client requests and provide requested data. In
accordance with an embodiment of the present invention, the server
program 506 responds to client requests for the results of the
above-described method for analyzing company data and projecting
future investment value therefrom by transmitting those results via
the data network 502 to the requesting user device. In an example
environment, the host 504 comprises an Intel processor-based
computer system running a Microsoft Windows or Linux operating
system.
[0088] As shown in FIG. 5, the host 504 is coupled to a storage
device 508 for storing electronic information that may be requested
by one or more clients. The storage device 508 may each comprise a
memory that is internal to the host, including but not limited to a
random-access memory (RAM) or a hard disk, or a memory device that
is external to the host, including but not limited to an attached
file server, one or more disk arrays, or a storage area network
(SAN). In accordance with an embodiment of the present invention,
the storage device 508 stores a database of the results of the
above-described method for analyzing company data and projecting
future investment value therefrom, so that the server 506 may
provide such results to in response to client requests.
[0089] A variety of conventional communication protocols can be
used to support communication between the clients 512a-512n and the
server 506. In an example operating environment, a Transmission
Control Protocol/Internet Protocol (TCP/IP) suite is used to
establish links and transport data, while a Hypertext Transfer
Protocol (HTTP) or File Transfer Protocol (FTP) application layer
is used for client-server communication. However, these examples
are illustrative. Results delivery in accordance with the present
invention is not intended to be limited to a specific communication
protocol or application, and other proprietary or non-proprietary
network communication protocols and applications can be used.
[0090] 2. Computer Useable Medium
[0091] In an alternate embodiment, the database is stored on a
computer useable medium, such as a floppy disk, CD-ROM, DVD-ROM, or
other magnetic or optical media, and is loaded by an end user into
a computer system, such as the exemplary computer system 400
described above in reference to FIG. 4. The end user may then use
the computer system to access the results from the database using
one or more standard or proprietary database access programs, as
will be appreciated by those skilled in the relevant art(s).
[0092] 3. Example User Interface
[0093] FIG. 6 illustrates an example user interface 600 for
presenting the results of the above-described method for analyzing
company data and projecting future investment value therefrom in
accordance with an embodiment of the present invention. As
discussed above, in an embodiment of the present invention, results
are presented via a data network, such as via the Internet. In
accordance with such an embodiment, the user interface 600 may
comprise part of a Web page that is accessed by an end user using a
commercially-available Web browser. As also discussed above, in an
alternate embodiment of the present invention, results are stored
in a database on a computer useable medium, such as a floppy disk,
CD-ROM, DVD-ROM or other magnetic or optical media, and are
accessed by an end user using a computer, such as a standard
personal computer. In accordance with such an embodiment, the user
interface 600 may comprise part of proprietary database access
software that is used to access the database stored on the computer
useable medium.
[0094] As shown in FIG. 6, the example user interface 600 includes
a letter grade section 602 that reports a letter grade relating to
the future investment value of the company, and a section 604 that
explains the meaning of the letter grade reported in section 602.
In an embodiment, these fields correspond to the grades and
investment categories set forth in Table 2, above.
[0095] The example user interface 600 also includes a board scoring
section 606 that displays the scores assigned to the company's
board of directors in the areas of CEO compensation 608, outside
director shareholdings 610, and miscellaneous factors relating to
corporate governance 612, as well as a total sum of those scores
614. In an embodiment, these scores are assigned based on factors
related to corporate governance in accordance with a methodology
similar to that presented in reference to flowchart 300, above,
except that the methodology does not take into account merger and
acquisition decisions or accounting and audit practices. Such a
methodology, however, is also within the scope of the present
invention.
[0096] The example user interface 600 further includes a board
effectiveness risk assessment section 616 and a susceptibility to
shareholder action section 618. The board effectiveness risk
assessment section 616 is used to present a risk assessment of
investing in the company. In an embodiment, this field corresponds
to the risk assessment categories set forth in Table 2 above. The
susceptibility to shareholder action section 618 is used to rate
whether or not the company may be susceptible to a shareholder
action based on corporate governance and past performance
factors.
[0097] In an embodiment of the present invention, the user
interface 600 is incorporated into a larger user interface that
contains other additional information about the company. For
example, FIG. 7 illustrates a user interface 700 that incorporates
the user interface 600 and also presents other information about a
company, such as information about the company's past performance,
board of directors, CEOs, committees, shareholders, accounting, and
the like. Please note that the example user interfaces 600 and 700
have been presented herein merely by way of example and are not
intended to limit the manner in which results are presented to an
end user in accordance with an embodiment of the present invention.
Numerous interface types and designs may be used to present the
results of the above-described method for analyzing company data
and projecting future investment value therefrom, as will be
appreciated by persons skilled in the relevant art(s) from the
teachings provided herein.
[0098] D. Conclusion
[0099] While various embodiments of the present invention have been
described above, it should be understood that they have been
presented by way of example only, and not limitation. It will be
understood by those skilled in the art that various changes in form
and details may be made therein without departing from the spirit
and scope of the invention as defined in the appended claims.
Accordingly, the breadth and scope of the present invention should
not be limited by any of the above-described exemplary embodiments,
but should be defined only in accordance with the following claims
and their equivalents.
* * * * *